Race to speed Net content now a survival sprint

Squeezed between a funding crunch and cash-poor customers, the once-hot business of speeding Web site content to Internet surfers is on the ropes.

The market's leader, Akamai Technologies, is reeling after layoffs and declining revenue estimates. Smaller rivals, such as iBeam and Edgix, are looking for buyers or have been forced to restructure their businesses.

Just a year ago--when Akamai's stock was still trading around $100--the business was seen as a critical component of the Net, where myriad companies might make money by eliminating network bottlenecks that slowed Web site downloads. But the business was an expensive one to get into, and like Net infrastructure providers across the industry, the companies that swarmed into Akamai's territory are now struggling.

Analysts say the business is still critical, but the market isn't big enough for all the companies that emerged. Even the leaders will have to do some serious rethinking in the upcoming months, they say.

"Frankly, a lot of (these companies) were Akamai wannabes capitalized by greedy people wanting a bit of the Akamai action," said Jupiter Research analyst Peter Christy, who follows the industry closely. "Now their life expectancy is measured in how long it takes them to burn through their cash."

Slowing down the speeders
The content delivery business is built on the idea that Web companies would pay a premium to keep their visitors from having to wait while pages loaded slowly on the computer. Akamai was the first major company to break into the public eye, making headlines by grabbing Net powerhouse Yahoo as one of its first customers and creating a sophisticated technology that was seeded at the Massachusetts Institute of Technology.

As big companies flocked to Akamai's network--and as that company's stock shot skyward--a host of competitors began entering the market. Some of the early rivals, such as Sandpiper Networks and Mirror Image Internet, were snapped up by other Web services companies looking to expand their portfolios.

Most of these companies pursued different slices of the same idea. All attempted to move much of a Web site's content to the "edge" of the Net. This meant different things to different companies, but generally involved putting a vast number of data storage machines inside local ISP networks and other points that were as physically close to Web surfers as possible.

Parts of Web sites such as unchanging graphics or text were stored in these "caches." Thus, when someone tried to download a Yahoo page, for example, many of the biggest, slowest elements of the page no longer had to go through bottlenecks and traffic jams elsewhere on the Net, speeding the overall download of the page.

Bad time to build
Several of the oldest and most successful of these companies already have their networks substantially in place. But to compete on speed and efficiency, some of the others are still playing catch-up. That requires either new funding or profits, both of which are now in short supply.

The problem,

Meta Group says that in Web-hosting or related fields these days, there is no shortage of companies announcing financial problems. see commentary

these companies have found over the last few months, is complex. Even for the relatively successful companies, customers have been stingy with their wallets over the last few months. Akamai, Digital Island and others have laid off staffers and cut back on other expenditures.

Economic uncertainties resulted "in a virtual flat line in terms of new business in the first part of the second quarter," Digital Island Chief Executive Ruann Ernst said in a conference call Tuesday. "Many of our potential and existing customers had a deer-in-the-headlights reaction to any new IT spending. They froze decision making."

Less-established companies--Akamai, Speedera and Digital Island tend to be cited as the biggest three--are running into worse problems. They need money to keep building and maintaining their networks. But customers leery of farming content distribution out to a network that will go out of business aren't signing on, while venture capital funding has simply dried up.

iBeam, a content distribution company that focused on streaming media, said late last month that it was examining its "strategic alternatives"--Wall Street code for looking for a buyout partner--as it faced its own pressing cash shortage. Edgix, a newer company that had focused on ISPs instead of Web sites for its customer base, is "restructuring" and "exploring a number of different options," a spokesman said.

"All these infrastructure businesses have problems scaling fast enough to keep ahead of their capital burn rate," said Rob Batchelder, a Gartner Dataquest analyst.

New warning signs
Even beyond the economic downturn, companies from Akamai on down have to worry about a new threat, analysts say. The big telecommunications companies, which own networks of their own that crisscross the United States, are getting into the game.

Qwest Communications International announced early last month that it would begin offering content delivery services in conjunction with technology provider Cisco Systems. Analysts say other giants--most notably WorldCom, which owns the UUNet data services company and Web site hoster Digex--are likely to follow suit shortly.

These companies may not offer the same level of service as Akamai or the other leaders in the start-up world, which have devoted considerable capital and programming talent to adding software-based Net-speeding capabilities to their networks. But the presence of new, deep-pocketed competitors will likely have a downward pressure on prices for the services, analysts say.

Moreover, they will be competing for a limited number of valuable customers. The number of sites that are large, well-funded and popular enough to require content-speeding services is dwindling. And many of these have already signed up with one of the existing services.

"The cream has already been skimmed off this business," Batchelder said. "So now the question is, how does Akamai keep people interested? I think this market is going to go through a period of extreme transition over the next 24 months."